A Complete Guide to Pradhan Mantri Mudra Yojana Scheme

Small and medium-sized businesses often struggle to obtain loans from traditional financial institutions. Recognising the importance of these enterprises in driving economic growth, the government offers assistance to help them thrive. One such program is the Pradhan Mantri MUDRA Yojana (PMMY), which provides credit facilities to micro and small enterprises.

If you are a small or medium business owner facing financial difficulties, consider applying for a MUDRA Loan. Here is everything you need to know about the PMMY scheme, its eligibility criteria and documents required to apply. Read on!

What is the Pradhan Mantri Mudra Yojana?

Pradhan Mantri Mudra Yojana (PMMY) is a Government of India scheme providing loans to non-corporate and non-agricultural small businesses. MUDRA loan provided under this scheme are business loans of up to Rs. 10 Lakh by banks, NBFCs and small finance banks. Under this scheme, registered lenders can provide three categories of loans, namely, Shishu, Kishore and Tarun, each with different terms.

Benefits of MUDRA Loan

MUDRA loan offers several benefits to small and medium businesses:

• It is collateral-free.
• Can be utilised for a variety of purposes.
• No processing charges.
• Credit facilities extended to small and micro enterprises.
• Available for both fund and non-fund-based requirements.
• No minimum loan amount requirement.

Interest Rates and Limits

The interest rates and loan limits vary based on the financing options available under the scheme. There are three categories of loans available under PMMY:

• Shishu Loans: Typically, the interest rates for Shishu Loans are the most favourable among the three categories, starting as low as 1% per month or even less. However, it is advisable to verify the specific rate with the lending institution.
• Kishore Loans: Interest rates for Kishore Loans are generally competitive and may vary, ranging from approximately 1% to 1.25% per month.
• Tarun Loans: Compared to Shishu and Kishore Loans, Tarun Loans typically carry slightly higher interest rates, which can range from approximately 1.25% to 1.50% per month.

It is crucial to acknowledge that Mudra Loan interest rates are subject to fluctuations and government regulations. Therefore, when applying for one, it is advisable to verify the current rates with the respective banks. The following institutions offer this loan under the PMMY scheme:

• Non-Banking Finance Companies
• Private Sector Banks
• Regional Rural Banks (RRBs)
• Co-operative Banks
• Public Sector Banks

Loan Amount Offered Under the Mudra Yojana Schemes

Under PMMY, MUDRA has created three products or schemes Shishu, Kishore, and Tarun. These schemes cater to the growth and funding needs of micro units and entrepreneurs. The loan amounts offered are as follows:

• Shishu: up to Rs. 50,000/-
• Kishore: above Rs. 50,000/- and up to Rs. 5 Lakh
• Tarun: above Rs. 5 Lakh and up to Rs. 10 Lakh

Factors Affecting Interest Rates

Mudra loans offer a lifeline to small businesses in India, but the interest rate you receive can vary. Here is a breakdown of the key factors that influence MUDRA loan interest rates:

• Borrower's Credit Risk: Your credit history plays a significant role in determining interest rates and other loan terms. A high credit score demonstrates your creditworthiness and translates into a lower interest rate. Conversely, a lower credit score might lead to a higher rate.
• Loan Amount: Generally, smaller loan amounts (offered under the Shishu category) might come with slightly higher interest rates compared to larger loans (Kishore and Tarun categories). This is because smaller loans pose a higher risk for lenders due to administrative costs.
• Repayment Period: Opting for a shorter repayment term allows you to avail a lower interest rate as the lender's risk exposure is reduced. On the other hand, longer repayment periods might come with a slightly higher interest rate.
• Government Initiatives: Government programs and subsidies can sometimes affect MUDRA loan interest rates. For example, specific schemes might offer temporary interest rate reductions for certain sectors.
• Market Conditions: Economic conditions can affect interest rates. During periods of high inflation, lenders might offer slightly higher interest rates to offset their borrowing costs.
• Business Type: The nature of your business can also influence the interest rate. Low-risk businesses like stationery shops might receive lower rates compared to high-risk ventures like restaurants.
• Lender Policies: Different lending institutions (banks, NBFCs, etc.) have their internal policies and risk assessment models that can influence the interest rate offered.

Tips to Get a MUDRA Loan at Affordable Interest Rates

Here are some tips to secure MUDRA loan at affordable interest rates:

• Improve Creditworthiness: Applicants with a strong credit history and demonstrated repayment capability are more likely to receive favourable interest rates.
• Have No Loan Defaults: Applicants with no history of previous loan defaults typically have an advantage in securing lower interest rates.
• Business Nature: Understand that the nature and type of your business can influence the interest rates offered. Businesses with lower risk profiles typically qualify for loans at lower interest rates.
• Higher Annual Turnover: Higher annual turnover and business volume often lead to lower interest rates being offered.
• Research and Compare Offers: Explore and compare loan offers from different Banks/NBFCs providing Mudra loans to find the most competitive rate.
• Income and Loan Amount: Your income, desired loan amount, and chosen repayment tenure play a role in determining the interest rates.

Eligibility Criteria for MUDRA Loan

The eligibility criteria for MUDRA loan are tailored for small businesses in the non-corporate, non-farm sector:

• Possession of Necessary Skills: Applicants should possess the requisite skills or talent to initiate or expand a business venture.
• Income-Generating Activities: The business unit or individual must be involved in activities that generate income.
• Age Requirement: Entrepreneurs must be aged between 18 and 65 years to qualify for a PMMY loan.
• Good Credit History: Applicants are required to demonstrate a good credit history.
• Activities Covered: Manufacturing, trading, service-related, and allied agricultural activities since April 1, 2016.
• Absence of Default: The applicant should not have any history of default with any financial institution.

Documents Required to Apply for the MUDRA Loan

The Pradhan Mantri MUDRA Yojana Scheme streamlines the loan application process for small businesses. To ensure a smooth experience, here is a breakdown of the documents you will typically need:

• Government-Issued ID: Aadhaar card, PAN card, Voter ID card, or driving license.
• Business Address Proof: Utility bill (electricity, water) or rental agreement to verify your business location.
• Bank Statements: Bank statements for the past 6 months.
• Completed Application Form: Fill out the application form accurately and attach recent passport-sized photographs.
• Bank/NBFC Specific Requirements: Certain financial institutions might have additional requirements for MUDRA loan. It is best to check with your chosen lender for their specific documentation needs.
• Category Proof (Optional): If you belong to a special category like OBC/ST/SC/Minority, present a relevant certificate to potentially avail any applicable benefits.

Also Read - Top 10 Reasons Indian Businesses Face Rejection for Small Business Loans

How to Apply for a MUDRA Loan?

The Pradhan Mantri MUDRA Yojana Scheme empowers small businesses in India with access to loans up to Rs.10 Lakh.  Here is a breakdown of the application process to help you navigate it smoothly:

Step 1: Gather Your Documents

Before applying, ensure you have all the necessary ID proof documents such as the voter ID card, PAN card, Aadhaar card, and driving license along with address proofs such as utility bill and rental agreement.

Also, if your business is registered, locate your incorporation certificate and provide your address proof and other financial documents.

Step 2: Choose Your Lender

Various financial institutions across India offer MUDRA loan. Research and compare options to find a lender with competitive interest rates and terms that suit your business needs.

Step 3: Complete the Application Form

Visit your chosen lender's branch or access their online application portal.  Carefully fill out the MUDRA loan application form, ensuring all information is accurate and complete. Attach the required documents as instructed.

Also Read - When is the Right Time to Take a Business Loan?

To Conclude

The Pradhan Mantri MUDRA Yojana serves as a blessing for aspiring and existing small and medium-sized businesses in India. If you are facing a financial crisis with your business and are unable to get funds to keep it running, apply for a MUDRA Loan and avail funds according to your needs. By understanding the scheme's benefits, loan categories, eligibility criteria, and application process, you can leverage this initiative to fuel your entrepreneurial dreams.

Frequently Asked Questions

1. What is a MUDRA Loan?

Mudra stands for Micro Units Development and Refinance Agency. It is an Indian Government initiative to provide financial assistance to micro and small enterprises.

2. Why has MUDRA been set up?

MUDRA addresses small businesses' financial needs and promotes entrepreneurship, particularly among underserved segments of society.

3. What are the roles and responsibilities of MUDRA?

MUDRA's primary role is to provide refinance and credit support to financial institutions for extending loans to micro and small enterprises. It also promotes entrepreneurship development and facilitates the growth of small businesses through various schemes and initiatives.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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